All the governments in the world must agree upon a universal principle on how not to allow other countries' citizens evade taxes. But I am not so sure how this can happen in the near future as governments are so different and hardly agree upon anything. Beside this practical fact, how much does all this tax collection on an income basis cost governments? Wouldn't it be simpler just to tax people for what they consume? I think all the costs involved in tracking and collecting income tax makes it a rather demagogic effort by the government (politicians) to prove its usefulness, mainly to the significant number of lazy and jealous voters. Beside all this I am sure about one thing, which has nothing to do with taxation, and that is about not letting dictators and corrupt officials amass the wealth they steal from their home countries and hide in Western banks. If it would become impossible for such individuals to do this they would be less tempted to continue stealing from their impoverished citizens.

For all the lam-basting of ‘government’ in some comments, it must be said: governments are nothing more nor less than necessary compromises made amongst a given mass of people in a geographic area that see the sense in having some of their needs met by having them done by one entity ... such as, building a bridge, agreeing as to where roads and streets meet the most demands, paving those roads and streets, providing for effective traffic-control systems, constructing sanitary water-supply systems, passing laws to protect the masses from advantage-seeking sheisters who are frequently very clever but greedy ,,, and on-and-on. So how do you pay to have someone do this for you, so you can drive your car or truck on paved streets, expecting to see street-lighting and traffic-controlled intersections? Well, you chip in with your neighbors all around you, and pay an agreed-upon contribution that is determined by the group of people you voted for to represent you.
Given that there are MANY very clever but greedy people in this world, it is only to be expected that they would take any and every advantage they can to avoid or minimize the share their governments want them to pay. The powers that be have managed to convince the world that SECRECY IS SACROSANCT, but NOT TRANSPARENCY!
This is not to say that governments all do a good job! If an area is fortunate enough to have some form of democracy, the people can vote, but - alas - from a slate of choices most heavily determined by politically powerful elites. So, yes, governments can be and often are FAR FROM WHAT we would like. But what is the alternative?
Without character, without honesty, without cooperation, the world is a hell.

I am not rich (actually poor). But i believe that tax systems in most countries are very oppressive. You might end up giving up more than 40% of your income in taxes in US and more in many other countries if you are wealthy.
And most of this wealth isn't even used in providing opportunities to people like providing better schools, colleges, hospitals etc. Mostly used to fund useless wars like the ones in Afghanistan, Iraq and maybe Iran now or spending recklessly in government programs like Social Security, and other forms of welfare.
Think about an analogy. I can't barge into someone's house and demand that they pay up 40% of their income or else go to jail. Governments shouldn't be able to raise tax rates to any level they see fit just because government wants to raise more revenue or people are feeling jealous of the success of some people.
You should need a constitutional amendment to even think of raising taxes.
Considering the economics of the issue. Extreme taxation of hard-working people makes them not use their potential to the fullest. Say i am a factory owner. I can perhaps create more jobs and generate much higher profits i am not forced to pay 35% federal tax + more state taxes. In short, excessive taxation goes AGAINST MERITOCRACY.
When people try to hide their hard earned money in tax havens then they are "breaking the law". We should also look at how unjust the law is and not just think that since we are poor (or middle-class) and maybe we are not talented or hard-working enough to be the CEO of some company we should extract a rent from them.

Yes I was only talking about income tax in the U.S. When one brings in business, corporate, capital gains, inventory, property, and other taxes, the ratio of taxes the wealthy pay goes up.
But then again, when looking at prices of goods and the various taxes embedded in those prices consumers pay, the ratio might change a bit. But then whose fault is that?

Your assertion of zero income for the 99% is hyperbole. One can not look at the problems the U.S. economy is in without coming to the conclusion that over involvement of the government is the root cause.
The same can be said of the European countries and the U.K. Repeatedly it has been shown that if the government backs off of interference with the private sector the economy grows and fewer people need welfare. The Thatcher, Reagan, and Clinton years are a prime example of this for modern times. But then not as many votes can be bought with fewer people on welfare.

The tax system in Greece is too repressive giving rise to massive evasion. Plus the corruption of the government blocking the growth of private business is another factor impeding Greece. The country has dug itself into a hole that will be exceedingly difficult to get out of and thus businesses will not grow as investment goes elsewhere. I for one am waiting to see if Greece replicates the Wiemar Republic inflation experience.

They don't have too. But there helping Americans break US law so the US can but pressure on them. They could say no. The US could also place sanctions on them, ban banks from working with them. Arrest their employees if the touch US soil. If they want to be complicit in a crime that's fine. but there not going to get sympathy when the US government replies.

I don't think evasion of US taxes is a crime in Switzerland. By applying sanctions wouldn't the US be guilty of violating trade agreements? Can a non US citizen really be arrested in the US for a legally required action in another country?

Actually, they are not currently complying with US law. They failed to show up in court a few days ago.

The US has some powerful sanctions against individual banks, particularly global outfits like UBS that can't afford not to have a presence in the US. They also can sanction Switzerland as a country by, for example, cancelling double taxation treaties. Customers with bona fide non-US income won't deposit it in a Swiss bank if the IRS are going to tax it anyway.

1. The issue is not tax evasion, or theft. It is about (a) a country's sovereignty; (b) the right to privacy.

a. I for one would like to see the Swiss stand up to the US. Who is the US to tell another sovereign country to retrospectively break their laws?

b. If Google were asked by the Chinese to give up all the identities of mainland Chinese email users, should they? My bet is that all the commentators below would answer NO. Similarly, why should the Swiss give up the identities of Americans who bank with them?

2. What is wrong the the "information on request" principle? If you have evidence that someone is evading tax, then the Swiss will gladly hand over details. This is in line with one of the most cherished judiciary concepts in the US: people are innocent until proven guilty. The danger with the current situation is that if the Swiss hand over names of all US depositors, these people will become guilty until proven innocent. BTW, I am not American, nor do I have any Swiss bank accounts.

1. U.S. should send troops to Swiss, take over the banks? Iraq has committed much less crime than the Swiss banks, there are no Weapons of Mass Destruction and hundreds of thousands, millions innocent peole die....

2. If Google does not like the Chinese rule, Google can move out of China. Indeed, Google moved to Hing Kong....

Your arguments are wrongheaded. The issue is whether one country has a right to assist another country's citizens to break the law. Switzerland and the other tax havens have lived as paracites off a proportion of the wealth generated in other countries. Because these funds went missing it has enjoyed above-average standards of living, education, healthcare and pensions at their expense. Furthermore, there is not a self-respecting drug lord, arms dealer, slave trader or third-world dictator that does not have a Swiss bank account. It goes with the Rolex watch and the pimpmobile. Everything possible should be done to bring these people to book and act as a deterent to other - nothing less will do. In your heart of hearts you know this is true.

Au contraire, you will see that most people agree with my arguments while v few agree with yours. How many recommendations has your post received versus mine to date? Sure you can start twittering a campaign to get more votes, but we all know the truth.

Of course you could take another view and say that the majority of readers of the Economist are idiots and you alone have the monopoly on truth. If you take this position, I concede the argument.

Since you posted 4 days before me the number of recommendations is not much of an argument. Postings made early in a debate always get more hits. Bye the way, 36 hits is not that much support for your argument in a conservative, pro-business journal either. The problem with the information upon request principle is that most of the evidence for wrong-doing will be tied up in the account details and held in Switzerland thus creating a "catch 22" situation. Switzerland is saying that it won't release the information unless the enquiring foreign authority provides it.

Not all wrongs are equally severe. On the one side of the argument people do have a right to privacy. On the other, police authorities have a right to investigate wrong-doing. Up to now, the balance has heavily favoured people who do western societies huge harm and I don't think that's right.

If Swiss banks only have to comply with US law if they want to do business in the US. If their client confidentiality is such a point of principle, they can simply withdraw from the US market. It's simply a question of how much their principles are worth to them.

The information on request principle works both ways. Unless of course you are saying that a different set of rules applies for the US and the rest of the world.

You are right that not all wrongs are equal. But the principle holds, and furthermore you brought up the parallel, not me.

By your reasoning, Swiss banks now have to comply with US law when US citizens come to Switzerland. The parallel would be if a German were to go to the US, then he would have to obey German and not US law. Amazing thinking. I applaud you.

Please don't be silly. The U.S. can't do that; they will have to take on France, Germany and Italy.

If there is a possibility, however remote, that a crazy tyrant of a country has access to mass destructive capabilities the leaders of other nations would be grossly negligent and in dereliction of their duties not to nip the danger militarily early in the bud, unless it is proven without a shadow of a doubt otherwise; that she or he is not crazy.

The U.S. was right to go into Iraq, Saddam Hussein was crazy, and the people weren't innocent. Besides, the U.S. had to, with or without UN permission, because the Saudis wanted it done. Whatever Saudi Arabia wants Saudi Arabia gets!

Once you make the short analytical trip from 'tax evasion' to 'theft', and look at those numbers by BCG on Switzerland's place in the market, you're forced to wonder if the entire country shouldn't be indicted as a criminal enterprise.

Seriously, I get every one's anger at the US government and taxation being a protection racket. I do. But as my granny used to say, 'two wrongs don't make one right'. She was a heck of an Ethics philosopher.

I am an Indian currently studying in US. US is supposed to be a capitalist country but it's perhaps more socialist than India. Here if you are not good enough to get a job you will get hefty benefits (perhaps more than many people earn in India), which encourages dependence, when you get old and you haven't saved anything you get Social Security benefits using some one else's tax money. I think these two programs account for maximum expenditures made by the US government.

Before the 90's in India my father, even though he didn't earn much at all paid about 70% of his income in taxes. Many businesses used to evade taxes then. They do so even now but perhaps to a lesser extent. In US now the tax rates can exceed 40% for the wealthiest people which is totally unjust.

You can perhaps cut off on the welfare schemes, force the people to work and save for themselves and funnel all the savings from that in education, research and development. You can perhaps then even institute tax cuts for all the people in the US.

John, I totally agree with you. Thanks for your interesting prospective. I'm encouraging a complete overhaul of the individual and corporate tax code. However, in the meantime the Govt must do its best to recover the cheaters taxes and by putting the largest whistleblower in the history of this topic they certainly are not trying very hard.

I don't understand how the OECD loses credibility when (a) it sets its own definition of "cooperative" and then (b) tells you whether a country meets that definition. And then being accused of not providing evidence is a bit rich, given that nobody knows what the true figures are (but I can tell you this: it is in the interests of the Tax Justice Network to exaggerate them). The OECD was just an example of a credible witness. The Tax Justice Network is a lobbying group (as, it seems, is "Global Financial Integrity") - decide for yourself whether it's in such groups' interests to BS

There are a number of factors that contributed to the establishment of so called 'off-shore' accounts and the numbers provided do not provide information on how these impressive amounts were reached over te hundreds of years of 'tax management'. Nor does it provide information on the savings that fled countries in anticipation of civil unrest or wars or simply brutal mismanagement of economies by incompetent politicians that led to huge devaluations of their countries currency and the resulting drop in purchasing power. I remember having to pay in excess of SFr 12 for an English Pound Sterling, SFr 4.30 for an US$ and in excess of 1.25 for a DM. The mere fact that the savings were transferred into 'hard, i.e. save' currency was not a crime - not declaring it to their fiscal authority, however, was in most instances, fiscal authorities that represented precisely those regimes people did not trust.... This is not written in defense of money that was derived by illegitimate ways, corruption etc. But it could probably be established that a high percentage of the funds deposited in those accounts, could, if analized on a case to case bases be found to have been deposited as a result of justified and legitimate concerns by the depositors at the inception.

"But it could probably be established that a high percentage of the funds deposited in those accounts, could, if analized on a case to case bases be found to have been deposited as a result of justified and legitimate concerns by the depositors at the inception."

That can only be verified when names and account details are disclosed. So let's end the secrecy and see, shall we?

None of this is about morals -- it's about global fiscal stress, just like the first lines of the article point out.
I labored some as I read the article to balance my liberal (original sense) ethics against the unabashed snivelling of off-shore clients.
In the end, my liberalism wins, because regardless whether the accusing nations are themselves sheltering, their motives in collecting taxes are not more benign than the motives of the accused. Marginal gain motivates both, though (some) of the banking clients are arguably more productive than governments.
Anyway, tax windfall (if it can be charaterized as such considering how expensive litigating is) of this magnitude will be a drop in the bucket of magnificent fiscal issues.

Of course this is about morals. If the funds parked in tax havens were obtained legitimately and the owners paid the taxes they were legally required, secrecy would be unnecessary.

"their motives in collecting taxes are not more benign than the motives of the accused"

Governments use taxes to provide services. Infrastructure, education for all, health care, support for the needy. In democracies people collectively decide on what to spend that money on.

The motives of the accused are greed, no two ways around it. Tax havens are free-riding on the wealth generated by people elsewhere. The clients are rich people who refuse to contribute to the systems and infrastructure that made them rich, and in many cases have obtained their money in illegal ways. Where does all the drug money in the world go, where the money of dictators of poor countries?

The majority of ill-made monies in the world are from the drug trade, which is *entirely* legitimate, voluntary, and benign from any standard of biopolitics worth its salt.

I don't defend tyrants who steal from their people and shuttle the money abroad. Nor do I defend tyranny in countries like mine (the United States). Taxes are a form of elegant stealing, which I on a relaxed day will admit might be somewhat necessary to maintain broad-scale mores of fairness. But "The pretext of the public good is the most dangerous scourge of government." - Jean Jacques Rousseau

Yes, the *pretext* of the public good may be dangerous but you seem to imply that all tax money is squandered. That is an issue of accountability. And there *is* such a thing as the public good.

Governments are a necessary evil. I too long for a world in which I don't have to pay taxes and am not restraint by all kinds of bothersome rules and regulations. But I realise that my freedoms can be my neighbour's shackles.

Where I live, those rules and regulations have been democratically decided on and are there for a purpose; often to protect the weak from the strong and public goods from free riders (e.g. environmental regulations).

Taxes are a necessary evil, too. They are there to pay for police to protect the innocent from the criminals, for equal chances in life for children, poor or rich. Unless there is universal health insurance, taxes are there to pay for basic health care for all. And for public parks we can all enjoy, and roads, bikeways, sewerage, rubbish collection, etc.

I value those things, and I am willing to contribute to them. But I also expect others to contribute their shar, and I detest those who selfishly try to avoid contributing their bit. All the more if they are rich and can't argue they need it to feed their children.

We should not be clamoring for smaller government and less taxes but for better government and more accountability.

Government is accountable to itself, and taxes mostly go to imprison nonviolent offenders, provide shoddy services inefficiently, and protect the advantage of the already-rich through putatively progressive tax codes -- tax codes that get manipulated one way or another, sans the opportunity to put money in international accounts.

Indeed your unabashed view that government exists almost exclusively in your interest is precisely the scourge Rousseau pointed to.

Your freedoms are not my shackles, because I presume you're not a knave as neither am I. Every social contractarian from Hobbes through Rousseau believed in some imaginary State of Nature in which savagery, robbery, violence, and a "warre of all against all" dominated. No such (correct) biological or anthropological record of nature exists.

Liberty proliferates to the degree that organic, voluntary cooperation emerges. As much is the story of the remarkable coordination across natural systems. Taxation any a monopoly of force represent the most suboptimal of all possible equilibria in social systems, and thankfully coordinate very few social institutions.

Your belief that government is at center and base of social structure, and therefore must be nurtured is empirically baseless, and philosophically dangerous.

Rousseau has been read, cursorily, as a Hobbesian encourager of the sword. That reading is mistaken. The vague intuition about a social contract goes that men submit to force voluntarily and necessarily. Indeed that was precisely Hobbes' thesis, and that of many of the French jurisconsults.

Rousseau had no illusions about the tendency of the administration to degrade the people's ability to legislate themselves, and wishfully maintain liberty consistent with rule.

Social Contract was written by Rousseau the philosopher and logician -- an a priori tract about how man *could* evolve from a state of natural law, which was mere independence (do-whatever-the-hell-I-want-ism), to a state of civil law, maintaining and in fact encouraging greater liberty through a social contract of mores. This "essence" you presumably note was not an empirical recommendation.

By the best estimate of his biography, Rousseau idealized a form of direct democracy he saw in rural Switzerland where he grew up, where every man made, voted on, and enforced laws. He was decidedly uncomfortable with the admitted necessity of a small body of magistrates to administer law in a larger society. And again, he had no illusions about the inevitable tendency of these people to corrupt the very Lockean liberty he hoped to resurrect from Hobbes' sword in Social Contract.

Thus the "cherry [I] picked" was no confused accident Rousseau wrote on an uncharacteristically cynical day. That "the pretext of the public good is the most dangerous scourge of government" was a foundation and *motivation* for Rousseau's wishful conractarian philosophy. Had Rousseau had the advantage of political theory in full bloom rather than nascence, he might have gone much further in his political economy to recommend that the only way to achieve a robust social contract is through voluntary exchange of property rights reinforced by tacit, most-often-not-litigated rule -- that is, modern trade where people do more business than suing and arresting one another.

Rousseau is regularly misread by the libertarians who abhor him (their vitriol is maybe better pointed at Compte than Rousseau), and the socialists who feel a sophomore reading of cliff notes on him suffices for a justification of a modern French bureaucracy that might plausibly make a man who reportedly despised authority (so much that he offended and ran from his entire life Catholic, and Protestant authority everywhere) sick to his stomach.

"Liberty proliferates to the degree that organic, voluntary cooperation emerges. As much is the story of the remarkable coordination across natural systems."

You seem to have a very rosy view of 'natural systems'.

Man evolved as hunter-gatherers in small groups. Not my field, but as far as I know in such groups, resources are shared. That is, the individual is less important than the collective. Social rules, rites and taboos regulate life. In addition I imagine there is something like direct democracy.

Below you already mention the 'admitted necessity' of a small body of magistrates to administer law in a larger society. I am afraid that is correct. In larger groups, the solidarity there is in small groups becomes harder to achieve. I believe that the solution to that, however imperfect, is representative democracy. That enables us to influence the rules (including taxes) and hopefully makes everyone (or almost everyone) feel that solidarity, and the willingness to adhere to those rules (again, including taxes).

Some people don't feel bound by those rules and see the government as an instrument of repression and theft of their hard-earned money. And true enough, governments may function like that.

I don't feel that way. For me, the government is the expression of that social contract. Imperfect, but mostly it does what I expect it to do: keep order, fund schools, provide infrastructure, protect the environment, etc. It also does things I don't agree with, but I know I am not alone in this world and can hardly expect all my wishes to be granted.

If you believe in organic, voluntary social contracts, try living in a anarchist commune. I don't believe that's easy, and I am pretty sure such groups end up agreeing on explicit rules of conduct, and those who don't agree move off.

On the scale of a country, if we'd ask for voluntary contributions to children's education, health care, infrastructure, police, etc., how much of those services do you think we can expect? None. If you decide you don't want to contribute, then neither will I. We need a State to force us all to do the right thing.

BUT we can hold the state to account. If you are saying that "taxes mostly go to imprison nonviolent offenders, provide shoddy services inefficiently, and protect the advantage of the already-rich through putatively progressive tax codes" you are indicating you lost your belief in democracy, and even though you may be prepared to solidarity, you don't trust the government as a vehicle for it. Or do I misunderstand you?

But what is the alternative to improving government? Do you really believe anarchism will work on a national scale?

No, not your field obviously: anthropological evidence evinces an enormous variance of hierarchy and property v. egalitarian resource distribution. Your Noble Savage just-so story has been shown to be wrong again and again. See Malinowski's ethnographies, or for a lay treatment Matt Ridley's books The Origin of Virtue and Rational Optimist. For an account of the astounding degree of coordination and cooperation in biological systems by a blistering and world-respected sociobologist, see Joan Roughgarden's The Genial Gene. If you're particularly in resting your political beliefs on the just-so story you've gleaned, you ought to view these and other cites I can provide.

I did not admit any necessity of a small group of magistrates to rule -- I said Rousseau did, and despised the fact because he notes that such groups degrade the liberty he aimed to promote.

I have indeed lived in intentional communities for substantial time. These communities fail. Markets and any number of social institutions, which is to say the majority of them (Boy Scouts, your friend group, families, churches, and on and on), are voluntary and held together by tacit social contracts. The government is *not* one such organization.

Anarchy is not a daydream -- it is the empirical stuff of the majority of human behavior. A world in which people needed to be constantly compelled with violence and force to act would look nothing like the world we live in.

I do hope you see the consistency in my argument empirically and theoretically now. And I hope you might begin to recognize the profound contradiction in arguing at once that the State is necessary to compel any and everyone to contribute to public goods, yet claim that you voluntarily and happily contribute to this process sans force. Indeed -- the personal will you profess is the government's apparently. Contradiction.

For case study after case study of how the public goods you presume *must* be provided by the State have mostly through history and continue to be mostly provided privately, see Tyler Cowen's (very readable) book on public goods. E.g. fire protection is mostly provided across the developed world by private voluntary organizations. Major urban areas are the only ones who maintain tax-paid full time forces, and it's not clear that this monopoly in the industry is a necessary or efficient way to provide the service.

I could go on. Meditate at least briefly though on how *little* of human societies actually run at the coordination of the State. Anarchy abounds in nature and in humanity, happily. And we ought to have much more of it.

Ah, but you misunderstand what you call my 'Noble Savage' story. Resources are shared, but I did not say that they were share equally. I also spoke of strong social rules. Not the kind of liberty you seem to long for.

Of course government is part of the social contract, in a democracy. So you'd prefer a world without state, without government? Instead, you'd have the self-organisation of the people? I don't think you'd have to wait long before the militias are waging their drug wars. Want to see what it's like? Try Mexico or Colombia. Or do you think we'll all happily share what resources there are, and take care of our weaker neighbours even if they are unable to contribute anything, to reciprocate in any way? You must have a weird view of humanity, or perhaps you think you'll be one of the winners in such a lawless world.

Anarchy abounds in nature and in humanity, but I wouldn't give that the adjective 'happily'. Go see Somalia for a feel of what it must be like. For some it works alright. The strong and cunning survive and may even thrive. The weak perish.

Wow. Very cogently & persuasively written. I have often thought on how the majority of our lives are made up of voluntary interactions w/ other individuals or groups, without requiring coercion or force. And, in turn, i wonder if it might be possible that some of the services currently provided by government (which one can conflate with 'force'), might not be able to be provided by non-force institutions, i.e. non-governmental ones.

I know this goes counter to our present experience in the US. However, our current largely privatized economic system in the US goes against the experiences of those in the former USSR, & seems to work pretty well.

Thank you, as well, for the book recommendations. I will take a look at them.

This 3.1 Trillion in Swiss banks is a drop in the ocean, considering the huge amount of money lying in other shores.I would say this BLACK MONEY is squeezed out the countries that can ill afford to swim across there by befuddled politician and capitalists who are corrupt to the core.

I disagree with Fernando Torres. He has not provided a shred of evidence that the Tax Justice network is "simply not credible". In fact, there is firm evidence that the OECD's list of non-cooperative tax havens is not credible. It's latest list finds all tax havens to be cooperative. The OECD's definition of what is cooperative is so narrow that it loses all meaning--the list of zero non-cooperative tax havens is totally divorced from reality. That is not a point that needs to be belabored. So stamping the OECD's work on tax haven cooperation as the standard-bearer on credibility is ridiculous when one can find their list of non-cooperative jurisdictions of no practical value whatsoever.

It is disappointing that a newspaper of the calibre of The Economist gives credence to any report produced by the Tax Justice Network. I appreciate that they are identified as a lobby group (and an intelligent reader can therefore arrive at their own conclusion as to whether the figure - a "known unknown" - is likely to be inflated or otherwise), but they simply are not credible. Are there no similar figures from the OECD? I know there are for the United States (I think it's around $100 bn, which makes the $3tn figure look suspect immediately). I think the article would have more heft if credible sources were used, rather than sources in whose interest it is to make the figure look massive.

1) Don't be disappointed, TE has been losing quality since last few years.

2) When you say the figures are 'simply not credible' the only reason that you give is 'motives' to inflate figure. I request you to go through their report and find 'evidence' of lack of credibility.

3) A possible way of estimation of money from non-OECD is to take the turnover of the arms industry, add the turnover of the drugs industry , then make a rough estimate of the margins or kickbacks in these.

4) Another way to estimate is from the fine that UBS agreed to pay in 2009 of $780m. Is that fine 10% or 1%?

5) A third way to estimate for OECD countries, that TE can do easily, is find out the profits of the fortune 50 companies, compare it to the tax payed by them.

I would also like to ask, if they are not stealing, why are they hiding? The question is also of transparency. In the 21st century when information flow/exchange is so easy and cheap, why are some places hiding information.

Can the Swiss or any other haven give a undertaking, that the money is not coming from or being used to fund terrorist, drug traffickers or human traffickers?